Equity Research PAC PARTNER S 13 December 2016 Mint Payments (MNW) Roger Chen Aust/NZ breakeven; Asia to drive the price [email protected] +61 3 8633 9868 Key Points Recommendation Buy Mint Payments, which started in 2005, provides multi- Previous Recommendation Initiation channel (In-Person, Online, Mobile) payment solutions to Risk Rating High 12,500+ merchants across the Asia-Pacific markets. Current Share Price $0.06 A simple and highly-scalable business model with 12 Month Price Target $0.14 increasing recurring revenues & low marginal cost per user provides great opportunities for margin expansion. Price Target Methodology 50% DCF, 50% Multiples Two key distribution partners signed in 1H’16 (NETS and Total Return (Capital + Yield) 152% ABSS), open the door to 400k+ potential new customers. DCF Valuation $0.17 We initiate with a Buy recommendation and 12-month price Market capitalisation $32m target of $0.14/share – nearly double the share price. Liquidity – Daily Value <$0.1m Pathway to Positive Cash flow Financial Forecasts & Valuation Metrics Mint currently provides multi-channel payment solutions to Y/e Jun ($m) 2016A 2017F 2018F 2019F 12,500+ users predominantly across the Australian and NZ Revenue 5.0 7.6 12.7 19.4 markets. With two newly signed contracts, the Company is now taking its validated technology and payment EBITDA -5.1 -3.5 0.4 4.2 infrastructure to the fast-growing South-East Asia market. NPAT -5.8 -4.2 -0.4 3.5 Investment Catalysts: EPS (cps) -1.3 -0.6 -0.1 0.5 - Strong Revenue and EBITDA Growth underpinned by favourable global trends and key distribution DPS (c) 0.0 0.0 0.0 0.0 partnerships. We expect sales revenue to grow at a EV / EBITDA (x) -6.8 -10.1 88.9 8.3 CAGR of 58% over the next 5 years, largely driven by user and transaction volume ramp up in the SEA region. PER (x) nm nm nm 11.0 - We expect FY’18 revenue of at least $12.7m. Dividend Yield 0.0% 0.0% 0.0% 0.0% Comparable businesses trade on 6-9x’s ‘18F sales; Cash Balance 3.2 5.9 6.4 8.2 which would drive a price of $0.11 to $0.17/share upon delivers and the same metrics. Source: PAC Partners estimates - Near Breakeven Point. Mint revealed a solid sales pipeline in the 1Q’17, with increases in all of its KPIs MNW share price performance (e.g. net users, transaction vol’n & value). We expect the Aust/NZ operations to breakeven in FY’17 and business to start generating positive cash flow from FY’18. - Significant Market Opportunities in the SEA region. Two significant partners were signed up in 1H’16 (NETS – equivalent to EFTPOS in Singapore and ABSS – MYOB Asia) to provide payment solutions to the SEA market. First product was launched in Sep’16. We expect user and total transaction volume & value to start ramping up in 2H’17 and beyond. View: We believe the Asian contracts that have recently been signed are not fully understood by the market, and hence not reflected in the share price. We initiate with a Buy recommendation and price target of $0.14/share. Our PT Source: Iress methodology is 50% DCF and 50% FY’18 revenue multiple. The risk rating is High due to contract execution risk and low share trading volume. Milestones: Feb’17 – mPOS solution launch with NETS ; FY’17 – Total active user of 20,000; FY’18 –Cash flow positive The information contained in this report is provided by PAC Partners to Wholesale Investors Only. The information contained in this report is to be read in conjunction with other important disclosures at the end of this document. PAC Partners | Equity Research Mint Payments (MNW) Table of Contents SUMMARY SWOT ....................................................................................................................................................................... 2 BOARD AND EXECUTIVES......................................................................................................................................................... 2 Executive Summary ...................................................................................................................................................................... 3 Company Overview ...................................................................................................................................................................... 5 What’s New? ................................................................................................................................................................................. 6 Revenue Drivers ........................................................................................................................................................................... 8 Favourable Global Trend.............................................................................................................................................................. 9 Competition ................................................................................................................................................................................. 11 Comparable and Valuation ......................................................................................................................................................... 12 Contact Information .................................................................................................................................................................... 16 Recommendation Criteria ........................................................................................................................................................... 16 SUMMARY SWOT Strengths Weaknesses Multi-channel solutions (In Person, Online, and Mobile) Delays in revenue ramp up Validated technology by key distribution partners Weak balance sheet and negative operating cash flow Self-owned payment infrastructure Low share trading volume – liquidity risk Opportunities Threats Changing spending habits – more card purchases, less cash Competition from large global players Fast adoption of mPOS terminals Tight government regulation Regulation tailwinds in the South-East Asia region Development of new technologies BOARD AND EXECUTIVES Directors Comment Terry Cuthbertson – Non-exec Chairman 1.6% shareholder, ex-partner of KPMG Alex Teoh – CEO & MD 15.1% shareholder, Co-founder, mgmt. consultant Andrew Teoh – Exec Director 14.8% shareholder, Co-founder William Bartee – Non-exec Director 0.2% shareholder, venture capitalist, ex SEK, ALT Anne Weatherston – Non-exec Director 0.1% shareholder, ex-CIO of ANZ Peter Wright – Non-exec Director 0.2% shareholder, 40+ years’ experience in payment Page 2 PAC Partners | Equity Research Mint Payments (MNW) Executive Summary Vision: To be the most innovative, trusted & dominant omni-channel payments business in the Asia Pacific region. Commencing operations in 2005, Mint has evolved into a multi-channel payment solution provider to the Asia-Pacific market place with validated technology and a simple, highly scalable business model. Source: Company presentation Oct 2016 Investment Catalysts: Changing customer payment habits. In the past ten years, people around the world have gradually switched from cash purchases to card payments. In 2015, debit & credit card payments represented ~90% of total transaction volumes in Australia. The trend is expected to continue globally, and in our view, Mint is well positioned to capture the growth opportunities with validated technology and a solid platform. Easy integration and hardware agnostic. Unlike typical hardware vendors, Mint’s technology and payment solutions are easily integrated with partners’ platform, and it is hardware-independent. This promotes customer stickiness as well as recurring revenue. Mint’s quarterly user churn has declined to 0.7% in 1Q’17. Near breakeven point. Mint has spent 10 years and ~$40m on its technology and platform, and we expect the Company to experience a significant inflection point in the near term. With existing contracts on hand, sales revenue and number of users are likely to ramp up over the next 3 years. We expect to see the Australian & NZ operations to be breakeven in FY’17, and the business will start generating positive cash flow in FY’18. Significant market opportunities in the South-East Asia (SEA) region. SEA market is expected to be one of the fastest growing payment markets in the world over the next five years underpinned by the huge population base and regulatory tailwinds. Mint has signed with NETS (equivalent to EFTPOS in Singapore) and ABSS (MYOB Asia) during 1H’16, and these contracts have opened up doors to 400k+ potential customers for Mint. Mint’s first product, known as “Click and Pay” was launched in Sep’16, and we expect significant user and revenue ramp-up to occur in 2H’17 and beyond. Investment View: The stock experienced a sell-off over the past 6 month and the share price declined by 50%. We believe the valuation is cheap based on the newly signed contracts in hands. We initiate our coverage with a Buy recommendation and a price target of $0.14/share. The risk rating is High due to uncertainties with contract execution and low share trading liquidity. Page 3 PAC Partners | Equity Research Mint Payments (MNW) Risks: Highly competitive market – Mint operates in a fast-growing and highly-lucrative industry. We saw a number of international players, as well as local banks, enter the market in the past few years. Increasing competition may erode Mint’s market share and profit margin in the future. Government